When it comes to evaluating a network marketing company, a basic Google search run is a great place to start to gather information but not jump into conclusions.
There are also several regulatory bodies that are worth considering during your evaluation of any network marketing company. I call these regulatory bodies, 3 lettered agencies because the acronyms of their full names are formed of three letters.
The BBB (Better Business Bureau) is one such three lettered agency.
It’s a private non-profit agency that indexes a company’s performance, customer reviews, and trustworthiness. Not just for network marketing companies, but corporate and small businesses too.
Therefore, knowing where the network marketing company you are evaluating falls within the BBB’s rating system should not be dismissed.
For a more in depth look into the BBB as a tool to evaluate the validity of the company you’re considering to join, you can read my previous blog here.
Besides the BBB, there are other 3 letter agencies that may help you in your evaluation when looking for the best network marketing company to join.
You’ve probably heard of this next one called the FTC which stands for Federal Trade Commission.
Unlike the BBB, the FTC is an independent governmental body in the United States whose primary mission is to prevent market monopoly, and protect and educate customers.
The FTC regulates and polices Network marketing companies through the agency’s guideline for MLMs to provide consumers protection from companies that make health claims, income claims, or use Ponzi pyramiding models.
The FTC has ZERO tolerance to self consumption business models and classifies them as Ponzi schemes.
Ponzi models are not always easy to identify. One way to identify is by looking at company’s customer to distributor ratio.
If the distributor:customer ratio is 100:0, then 100% of the distributors are 100% of the company’s customers base and this isn’t looked upon favorably by regulators.
The way companies classify the purchasers of their products/services as customers vs distributors vary company to company, but ultimately network marketing companies with a low number of customers per distributor in the field can get in trouble with the FTC.
Nowadays, FTC regulars increasingly want a certain percentage of a company’s revenue to come from non-distributor purchases of the product or services.
This has led many U.S. based MLM companies to classify those who are participating in the compensation plan with a different designation than those who ONLY take advantage of the companies product or service.
That’s why more and more network marketing companies in the U.S. are changing their business practices to increase their customer counts.
Good MLM companies are always trying to increase that ratio and stay within or even outperform the FTC’s customer acquisition standards.
In today’s regulatory climate, network marketing companies have to be able to show a clear delineation between customers and distributors. They also must be able to show regulators that a large percentage of their customer base are not distributors participating in the referral plan.
For example, in the wake the the corona virus pandemic, the FTC sent 10 warnings letters to multi-level marketing companies for making health and/or income claims.
The companies that received those warnings are listed below and grouped by the type of the warning they received. You can find more about this information on the FTC’s website. Here is the list:
GUILTY for Both Health and Earning Claims:
- Total Life Changes
GUILTY Earning Claims:
- It Works
- Rodan & Fields
GUILTY Health Claims
Does it mean these companies are pyramid schemes. Absolutely Not
Does it mean these companies are bad companies. Of course not.
But how they will respond to these warnings will be telling, wouldn’t it?
Clearly these companies have a problem with messaging and marketing that they need to address.
If they don’t make any changes and don’t rein in their distributors from making such claims on behalf of the company, they surely will get in more trouble.
If however they make changes, it will be interesting to see how these changes take effect and impact the field.
Should they strictly follow the FTCs guideline, more than likely, their pitch will ring true with a realistic tone to their listening audience.
This type of pitch is less likely to generate the excitement and hype that most MLM companies thrive on which obviously will result in decreased momentum and lower conversion rates — both with customer acquisition and new member recruits.
The bad news is that that these companies are now under the FTCs radar, so every move they make is critical to their survival and to the future of your business with them.
Collecting these type of information as part of your evaluation process is not only valuable but necessary. Especially when it comes to weighing the pros and cons of any network marketing company BEFORE you join it.
In the next blog, I’m gonna talk about another 3 Lettered Agency you should know about.
So today’s research question to ask is:
#22: Are there any legitimate FTC violations or complaints currently open on the company you’re evaluating?
Till next time,
Co-authored with Dr Maral “YESS” Yessayan, PhD.
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